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UCLA’s Anderson school of business reported that they see the first ‘dim flicker’ of light at the end of the housing collapse in California, citing year-over-year transaction increases in areas like Riverside (one of the hardest hit by the bubble). To me this just smacks of analysts wanting to be the first to call bottom without consideration to the underlying fundamentals of the California market.
The two most important of which are the fact that a majority of the loans in the more expensive markets were made with a combination of stated (a/k/a fake) income and exotic loan products like option arms and interest only loans that have yet to recast or adjust. How can anyone call for a bottom and say that foreclosures will ease in 2009 with a clear wave of resets looming on the horizon for 2009-2012 that are actually more severe in nature than ARM resets? That’s irresponsible.
An option ARM reset can increase the monthly payment requirement of a borrower 4-5 fold. With no equity to refinance these homes are going to go cascading in to foreclosure further hurting the market. Any one that does not take this eventuality as a serious threat to the market is just plain ignorant. It’s going to be messy.
See the graph and you tell me if we’re out of the woods yet.
Courtesy of Calculated Risk.
From Bloomberg:
“The combination of steep price declines, lower interest rates, and an easing of the credit crunch may now be bringing bargain hunting buyers back into the market,” for California homes, Ryan Ratcliff, an Anderson Forecast economist, wrote in the report. Riverside County posted a year-on-year increase in the number of homes sold, he wrote.
Foreclosures likely will continue to hurt California’s housing market for the rest of this year and then start to moderate in 2009, the Anderson Forecast said. While a “normal” housing market “is still a long way off,” according to the report, the increase in home sales in some parts of the state is a positive sign.
`Dim Flicker’
“This is the very dim flicker of the light at the end of the tunnel,” Ratcliff said in an interview. “I can’t say that I see an unambiguous sign of a turnaround, because by the time it’s unambiguous, it’s already been happening three or four months.”
Last 3 posts by Morgan
- Subprime Bananas - June 28th, 2009
- Roubini: No confidence in government exit strategy - June 24th, 2009
- Goldman bonuses largest in firm's 140-year history - June 21st, 2009
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